FRM formula sheets 2017 part i

Cover image: Loewy Design Cover design: Loewy Design Copyright © 2017 by John Wiley & Sons, Inc.. Published by John Wiley & Sons, Inc., Hoboken, New Jersey.. No part of this publication

FRM® EXAM REVIEW

2017

COVERS ALL TOPICS

IN PART I

FORMULA SHEETS

Cover image: Loewy Design

Cover design: Loewy Design

Copyright © 2017 by John Wiley & Sons, Inc All rights reserved

Published by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada

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ISBN 978-1-119-38565-3 (ebk)

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

Foundations of Risk Management (FRM)

Elton, ChaptEr 13

© 2017 Wiley

2

Elton, Chapter 13

E R f R f E R m R f

m X

( )= + ( )−

E R( )i =R F +βi( (E R M)−R F) Where:

R

p F

( )=

=

expected return of asset (of portfolio) risk-freee rate of return

expected rate of return of the mark

E R( M)= eet portfolio

Cov Var

1

β = ( , )

( )

R R R

i M M

Equation of CML:

E R p R f E R m R f p

m

( ) = σ+ ( )

σ

−

×

β

σ

ρ σ σ σ

ρ σ σ

i

i m m

i m i m m

i m i m

R R

2

,

( , ) ,

2

© 2017 Wiley 3

amEnC, ChaptEr 4

Amenc, Chapter 4

Sharpe ratio = Rp Rf

p

− σ

Treynor ratio = Rp Rf

p

− β

αp=Rp−[Rf +βp(Rm −Rf)]

TrackingError = σ (ActiveReturn − BenchmarkReturn)

IR

= −

−

R R

s R R

P B

P B

S R T

DR

= −

BodiE, ChaptEr 10

© 2017 Wiley

4

Bodie, Chapter 10

E R( p)=R F +λ β1 p,1+ λ βk p K,

Required return = Risk-free rate + (Risk premium)1 + (Risk premium)2 + + (Risk premium)k

Risk premiumi = Factor sensitivityi × Factor risk premiumi

Quantitative Analysis (QA)